Inequality and Public Resource Allocation

• Authors: Joan-Maria Esteban.
• BSE Working Paper: 747 | September 15
• Keywords: inequality , resource allocation , lobbying , imperfect capital markets
• JEL codes: D31, D61, D73, C72
• inequality
• resource allocation
• lobbying
• imperfect capital markets

We set up a signaling game where individuals differ in ability and wealth. Higher ability means larger benefit supported by the government. Costly signals are used to transmit information regarding own deservingness. However, capital market imperfections may perturb the signals by limiting the capacity of poor people to send the appropriate signal. We examine the cost in efficiency produced by the existing inequality in the distribution of wealth.